Whether it's Michael Burry in "The Big Short" or Warren Buffett during the Internet bubble, it takes extraordinary conviction to stick to your guns when virtually everyone says you're wrong, and dismisses your contrarian stance as stubborn foolishness.
David Rosenberg, a leading economist who called both the dot-com and housing crashes, remains fully convinced the US economy is headed for a recession. He doubled down on his forecast in a client memo titled "No, I'm Not Turning Soft" on Monday — and shared a bunch of colorful anecdotes about previous pushback he's resisted:
- I was asked all through 2007 when I was at Merrill, "where is this recession you've been calling for, Rosenberg?" and the same salespeople on the equity desk who refused to take me to see clients that year became my best friends in 2008 (they know who they are).
- I almost got fired twice for my calls in 2007 but my Institutional Investor All-Star rankings saved my skin.
- In the summer of 2007, I had a CIO at a famed Houston-based mutual fund storm out of a meeting I gave and he scolded me as he exited the boardroom ("you have no clue about the housing market or the economy for that matter").
- I had the head of Merrill's fixed-income sales physically throw my presentation package at me at an internal meeting and told me in front of about 30 people that I was the worst Fed-watcher he ever saw.
- One time, when I was walking around the trading floor, this guy called me over and handed me the phone and I thought it was a client but it was his wife on the line, and she said: "My husband asked me to ask you why it is you are so useless."
- I have one client, who shall remain nameless obviously, who hurls insults at me every single day.
- I was called the "skunk at the picnic" and the "class clown" in 2007 (and in 2000 as well when I was called a "Luddite" because I didn't understand how the Internet defeated the business cycle)
Behind the recession call
Rosenberg explained in his memo why he's not caving in to peer pressure and buying into the market narrative. Here are the key points he made:
- US GDP may have climbed 2.4% in the second quarter, but the economy grew by a similar percentage in the quarter preceding both the 2001 and 2007-2009 recessions.
- The Federal Reserve's interest-rate hikes will have delayed, negative impacts on the economy.
- Recession indicators including the inverted yield curve, The Conference Board's Leading Economic Index, and the New York Fed's recession model are still flashing red. "We are still well within the ranges of the past for each indicator," Rosenberg said.
- Americans are still spending the savings they accumulated during the pandemic, and the Biden administration's fiscal packages have shored up the economy. Those factors have delayed the recession's onset.
- There's a big gap between the Conference Board's coincident and leading indexes, which has reliably been the case prior to previous recessions.
- The stock market's rally this year isn't surprising, as bear markets often start with a sharp fall, then stage a short-lived rally, before embarking on a protracted decline.
Refusing to back down
Rosenberg underlined in his memo that he isn't cowed by the opposition to his recession forecast, as it's nothing he hasn't seen before.
"The smugness and complacency are ubiquitous," the former chief North American economist at Merrill Lynch said. "All I can say is that this isn't the first time I have been early on the call, and certainly not the first time to face the wrath of 'haters' out there."
"The impatience and tempestuousness out there do not surprise me, either, having called the markets and the economy for nearly 40 years," he continued. "Resolve is clearly being tested, and this isn't the first time nor will it be the last time."
"I've been around the track enough times to know that."
